The Justice Department’s landmark monopolization case against Google is interesting.  The case represents yet another attempt to apply well-established antitrust principles in a rapidly-changing, dynamic technology market.

The government has a good record in monopolization cases in the high-tech sector.  Its case against Microsoft was hard fought and established several important principles to high-tech monopolists. 

Google’s Monopoly

Google controls approximately 90 percent of the United States search engine market.  Google’s only competitors include Bing, DuckDuckGo, and Yahoo.  From 2009 to 2019, Google increased its market share of general search services from 79 to 89 percent.

In the mobile and tablet market, Google’s market share in the United States is approximately 94 percent.  In the desktop and laptop market, Google’s market share in the United States is approximately 82 percent.

The relevant market does not include offline and online resources, such as books, publisher websites, social media platforms and specialized search providers such as Amazon, Expedia or Yelp, which offer a narrow search capability.

Relevant Product Markets

The government alleges that search advertising and general text advertising are each relevant product markets. 

The search advertising market includes all kinds of ads generated in response to online search queries, including general search text ads and specialized search ads (e.g. Amazon, Expedia or Yelp).  Search ads allow advertisers to target marketing messages in real time in response to a search query by a consumer.  These ads have great value to advertisers and are distinct from other types of advertising that cannot be targeted on a real-time, instant basis.  As a result, DOJ claims that there is no reasonable substitute for search advertising.  Google’s share of the US search advertising market is over 70 percent,

DOJ claims that general search text advertising is a separate product market within the broader search advertising market.  As explained by the Justice Department, general search text ads are sold by general search engines and typically placed just above or below the search results on a search engine results page (“SERP”) with a notation that the entry is an ad or sponsored listing.  Some of these ads include an image of the product, its price and star-based rating. In 2018, general search ads accounted for close to 85 percent of Google’s search ad revenue.

According to DOJ, for advertisers, there are no reasonable alternatives for companies that prefer to sell directly to consumers from their own websites and companies that want to protect their brand names on Google.  Google’s share of the US general search text advertising market.

Anticompetitive Conduct

DOJ’s complaint alleges that Google is a monopolist in the general search, search advertising and search text advertising markets.  Based on its monopolist position, DOJ contends that Google forecloses potential competition to protect its monopolies.

Google’s primary means of extending its monopoly is through a series of exclusionary distributor agreements, which cover almost 60 percent of all US search queries.  Half of the remaining searches are provided through Google properties, leaving only a small fraction of the market for competitors.

DOJ’s theory rests on the importance of Google’s scale and its ability to prevent competitors from ever securing critical scale to its operations.   

Google has used agreements with mobile distributors to prevent competition in two significant ways – first, Google established an exclusive search engine deal with Apple for its computers, tablets and phones; second, Google integrated into providing free access to its Android operating systems to ensure search engine dominance in market for cell phones using Android operating systems.

To secure the deal with Apple, Google pays Apple between $8 and $12 billion in advertising revenues each year.  The Apple deal covers approximately 36 percent of all general search queries in the United States.

With respect to Android systems, Google prevents competition through anti-forking (i.e., anti-modification) agreements, pre-installation agreements and revenue sharing agreements.  The anti-forking agreements prevent development of competing operating systems even though Android is an open source system.  Preinstallation agreements ensure that Google’s entire suite of search-related products is given premium placement on Android devices.  For most mobile phone sellers, access to Google’s suite of applications is an essential product offering on its phones.  Finally, in exchange for a substantial portion of Google’s search advertising revenues, Android phone sellers make Google the preset default general search engine.